The fact that household debts of $1.9 trillion in 2015 were caused by property flipping shows that this profit creation model is the next buzzword in the housing market. Yet, a great number of people fail at house flipping. The process is time-consuming and risky. How to make the grade in this field?
Analyse the market development
Ventures into high-risk waters of property flipping should begin with the analysis of the housing market in general. For instance, you should know that economists predict that house prices will become more consistent in 2016. In comparison to an aggressive market in 2015, buyers in 2016 will face less competition. New home building will fall by 12% and economists believe that this year will be great for sellers. Here’s an example of residential property price indexes, which are necessary pieces of information for a successful long-term house flipping.
Create a financial plan
Now that you have found out when it is the right time to start with house flipping, you should set up a budget for both the house and renovation. If you are planning to carry a loan, include it in the budget, as well. The budget for purchasing the house should be 70% of the after-the-renovation value of the house, minus repairs. Let’s say that the after-the renovation value of the house you want to sell is $120,000 and that it needs repairs numbering in $15, 000. The house you should buy in order to make a profit of $120,000 is the one of $69,000.
Think big, start small
Amateur house flippers should focus on small properties and properties at the lower end of the market. There is less risk and you will be more relaxed throughout the process. The next project should be a bigger property you can buy with the help of profit you earned after the first house flipping.
As you become more experienced in this field and start dealing with more than one property at the same time, make sure you ask professionals whenever you are having second thoughts. In a recent chat with the people offering professional asset management services, I found out that the latest asset management strategies can help individual house flippers achieve the strongest possible financial returns.
Tailor the house to a target buyer
Success at house flipping lies in thinking ahead. You are buying a specific type of house for a specific buyer at a specific location. A young couple with kids needs an inviting living room, several rooms for the kids and big front/back yard. If you are buying a house with a young couple without kids in mind, make sure the house has a guest room and/or a study room.
Newbies to house flipping can aim at houses which only need cosmetic renovation. Choose the property which can be improved in a couple of weeks. Not only will this tactic save you money, but it will enable you to sell the house fast before fluctuations in the selling price affect your profit. Focus on street appeal, a kitchen and a bathroom. New flooring, new paint, new kitchen and bathroom vanities and new blinds and energy efficient features are the basics of your house facelift.
When you are done, do not overprice. You are aware how much money, time and patience you invested, but truth is that buyers do not have a clue what you have gone through and they do not care. Stay within the price point you selected at the beginning, sell the house and begin searching for the next house to flip.